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January/February 1995, 
Vol. 77, No. 1
Posted 1995-01-01

An Introduction to the Theory and Estimation of a Job-Search Model

by Adam M. Zaretsky and Cletus C. Coughlin

The process by which people who have been laid off find jobs is important not only to the individuals themselves, but also to policymakers and scholars. Job-search models attempt to describe the problems faced by individuals and propose strategies for making optimal employment decisions. Adam M. Zaretsky and Cletus C. Coughlin describe a simple model that illustrates that the unemployed person’s decision to accept or reject a job offer is reduced to a comparison of the expected benefits from additional searching with the expected costs. They introduce a regression model consistent with job-search theory and illustrate the estimation of the model using a sample of approximately 1,200 former McDonnell Douglas employees, laid off because of cuts in defense spending. Their illustration highlights the effects that variables such as occupation, education, sex, tenure at McDonnell Douglas and unemployment insurance have on reemployment and prospective wage offers.